SAN DIEGO
A federal grand jury in San Diego returned an indictment this week charging the founder of BitConnect with orchestrating a global Ponzi scheme, according to officials.
BitConnect is an alleged fraudulent cryptocurrency investment platform that reached a peak market capitalization of $3.4 billion, officials stated.
According to court documents, Satish Kumbhani, 36, of Hemal, India, the founder of BitConnect, misled investors about BitConnect’s “Lending Program.”
Kumbhani is presumed innocent unless proven guilty, officials stated.
If convicted of all counts, he faces up to 70 years in prison.
Under this program, Kumbhani and his co-conspirators touted BitConnect’s purported proprietary technology, known as the “BitConnect Trading Bot” and “Volatility Software,” as being able to generate substantial profits and guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.
As alleged in the indictment, however, BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors. In total, Kumbhani and his co-conspirators obtained approximately $2.4 billion from investors.
The indictment further alleges that, after operating for approximately one year, Kumbhani abruptly shut down the Lending Program.
Kumbhani then directed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency, a commodity known as BitConnect Coin (BCC), to create the false appearance of legitimate market demand for BCC.
Kumbhani and his co-conspirators also concealed the location and control of the fraud proceeds obtained from investors by commingling, cycling, and exchanging the funds through BitConnect’s cluster of cryptocurrency wallets and various internationally-based cryptocurrency exchanges, the indictment states.
According to the indictment, to avoid regulatory scrutiny and oversight of BitConnect’s cryptocurrency offering, Kumbhani evaded U.S. regulations governing the financial industry, including those enforced by the Financial Crimes Enforcement Network (FinCEN).
For example, although BitConnect operated a money transmitting business through its digital currency exchange, BitConnect never registered with FinCEN, as required under the Bank Secrecy Act.
“Today’s indictment reiterates the FBI’s commitment to identifying and addressing bad actors defrauding investors and sullying the ability of legitimate entrepreneurs to innovate within the emergent cryptocurrency space,” said Special Agent in Charge Eric B. Smith of the FBI’s Cleveland Field Office. “Dressing up a tried and true fraud scheme with a new twist and basing it overseas will not deter the resolve and dedication of the FBI to meticulously investigate and bring such fraudsters to justice.”
“As cryptocurrency gains popularity and attracts investors worldwide, alleged fraudsters like Kumbhani are utilizing increasingly complex schemes to defraud investors, oftentimes stealing millions of dollars,” said Special Agent in Charge Ryan L. Korner of the IRS Criminal Investigation’s (IRS-CI) Los Angeles Field Office.
Kumbhani is charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering.
The FBI Cleveland Field Office and IRS-CI are investigating the case.